Did you know that a consumer’s credit score isn’t the most indicative measure of their capacity to pay? Credit scores lag, they don’t provide a full picture, and they can’t be monitored daily. By focusing on capacity to pay instead of a credit score, many in the collections industry are seeing an uptick in their paying accounts. But what is capacity to pay, and why does it matter?

Consumers often show an improved capacity to pay before their traditional credit scores fully recover. Capacity to pay considers certain events in a consumer’s financial life and how those events can impact repayment. By studying consumer behavior and the correlation between certain events and repayment of accounts, triggers have been identified that indicate timely contact with a consumer which can convert a warehoused or stale account into a performing account. 

Listen to our Executive Q&A with Experian’s Matt Baltzer, or read below to learn about capacity to pay, why it matters, and how your organization can unlock its potential. 

Missy Meggison: 

Hi, everyone! We’re here today with another episode of Executive Q&A. I’m Missy Meggison, editor of insideARM, brought to you by Auriemma Roundtables, and I’m joined today by Matt Baltzer, Senior Director of Product Management at Experian. Matt, can you give us a quick introduction?

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Matt Baltzer: 

Hi, Missy, it’s great to be here. So I’m Matt and I’m one of the product leaders at Experian’s consumer information business, and one of the areas I focus on for solutions is to help debt collectors manage accounts.

[Missy]: 

Wonderful thanks for joining me today. Let’s talk about capacity to pay. In your experience, what does capacity to pay mean, and how does it differ from a credit score?

[Matt]: 

That’s a good question. Most consumers fully intend to satisfy a loan when it’s originated, but somewhere along the way something changes in their finances or life circumstances that forces difficult choices about payments. Fortunately, consumers typically find their financial footing, and as they do, they’ll start to show signs of an improved capacity to pay often before their traditional credit scores fully recover.

[Missy]: 

So let’s talk about that a little bit. What type of events may indicate that a consumer has an improved capacity to pay? What should debt collectors be looking for?

[Matt]:

The most telling events are actually when consumers begin to settle or pay off accounts that have been placed in collections. They may also bring current accounts that were previously delinquent. These are signs that the consumer may be in an improved financial situation, and that they’re taking an active interest in rebuilding their credit standing. Debt collectors should be looking for these signs because they may indicate an increased capacity and willingness to pay or settle your account next.

[Missy]: 

So let’s dig into that a little bit. How do you know these events lead to an improved capacity to pay?

[Matt]:

We’ve long known this from working directly with clients that use these positive improvement triggers as a signal to re-engage consumers who may have been falling behind on payments. But recently, we conducted a study to see how much in which events are most predictive. This demonstrated that a charged-off account for a consumer with a positive improvement or new trade event was more than 30% more likely to receive payment in the subsequent 90 days. And this was absent a direct intervention, meaning collectors probably were not acting on most of these signals. For some of these triggers, the improvement was as dramatic as 250%**.

[Missy]: 

Wow! That’s a significant number. And speaking of signals, how important is it for a debt collector to act quickly when there’s been an improvement in capacity to pay?

[Matt]:

For older or warehoused accounts, debt collectors are typically not actively engaging them or obtaining refreshed credit data. Even a quarterly refresh may miss a key moment when a consumer is actively repaying prior financial obligations. If a consumer hasn’t recently been contacted about an account that’s in collection, it may not be top of mind. So, it’s very important to leverage a solution that can enable you to act within days of consumers illustrating and improve capacity to pay.

[Missy]: 

So, what kinds of benefits and improvements have you seen from companies that have been effectively managing and monitoring capacity to pay?

[Matt]:

Companies that effectively manage and monitor capacity to pay can identify older inventory that would normally have a very low yield and reinsert some of those accounts into their outreach strategies. This approach can help companies improve their bottom line while putting consumers on a path to improve their credit history and overall financial health.

[Missy]: 

Well, that sounds like it could be a big undertaking. How have you seen debt collectors effectively implement a successful “capacity to pay” monitoring program?

[Matt]: 

It could be a big undertaking, but a solution like Experian’s Collection Triggers℠ is quite easy to start out with. Our team can work with debt collectors to select the handful of events to start, and you can easily manage your spend and workload to ensure you’ll see real benefit before ramping up. I’ve seen the entire process from contracting to receiving triggers take as little as just a few weeks.

[Missy]:  

Well, I certainly learned a lot there. Thank you so much, Matt, for answering all of my questions. I’ll turn it over to you for the closing and final thoughts for the audience.

[Matt]:

Thanks, Missy for the opportunity to talk with your audience. I’d invite anyone that’s interested in learning more to check out the links in this posting or contact us with questions. We’re here to help.

[Missy]: 

Wonderful. Thank you again so much for your time today, and thanks to everyone for turning into this episode of Executive Q&A. We’ll see you the next time.

———

Learn more about Experian’s Collections Triggers here. 

———

** Experian analysis of Trades that were charged off as of January 2023 using April 2023 Trigger file to capture Triggers in the last 90 days 

On February 27, 2024, the California Department of Financial Protection and Innovation (the Department) entered into a public consent order with a company that provides consumer financial services to California residents. The consent order alleges that between January 2020 and September 2022, the Department received complaints from consumers raising concerns about their accounts and customer service interactions with the company, which the Department forwarded to the company for investigation and response. The Department also investigated the company’s handling of those consumer complaints.

The Department found that the company’s complaint handling was deficient in that “occasional mistakes” that occurred in the Company’s responsiveness to consumer complaints were substantial enough to have violated the California Consumer Financial Protection Law (CCFPL). The Department alleged that as between the company and the consumer, the company was in the better position to accurately evaluate the available information in most cases and to respond to consumers’ complaints in a timely manner and while the number of mistakes during the Department’s investigation period was relatively small in comparison to the overall number of consumer complaints received, the Department concluded that the mistakes were important to the affected consumers.

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To resolve these allegations, the company agreed to (1) desist and refrain from violating the CCFPL through its complaint handling processes, (2) pay a penalty of $ 2.5 million, (3) enhance existing customer service procedures or processes, (4) establish, implement, enhance, and maintain testing policies, procedures, and standards reasonably designed to, at a minimum, ensure compliance with the law, and (5) report to the Department annually for two years on these standards. These standards require the company to:

• Ensure customer service support 24 hours a day, seven days a week;
• Ensure sufficient customer service support staffing;
• Ensure sufficient customer service support training; and
• Investigate and implement policies and procedures to maintain the accurate, prompt and proper handling of consumer complaints.

Why is it Important?

The CCFPL was enacted in September 2020 and grants the Department expanded authority over persons engaged in offering or providing a consumer financial product or service in California and their affiliated service providers. Notably, under the CCFPL, it is unlawful for a “covered person” or “service provider,” to do any of the following:

• Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice (UDAAP) with respect to consumer financial products or services.

• Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law.

• Fail or refuse, as required by a consumer financial law or any rule or order issued by the Department thereunder, to do any of the following:

                 – Permit the Department access to or copying of records.

                 – Establish or maintain records.

                 – Make reports or provide information to the Department.

The CCFPL defines a “covered person” to mean, to the extent not preempted by federal law, any of the following:

• Any person that engages in offering or providing a consumer financial product or service to a resident of California.
  
• Any affiliate of a person described above if the affiliate acts as a service provider to the person.
• Any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.

A “servicer provider” includes any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service, including a person that either:

• Participates in designing, operating, or maintaining the consumer financial product or service.
• Processes transactions relating to the consumer financial product or service, other than unknowingly or incidentally transmitting or processing financial data in a manner that the data is undifferentiated from other types of data of the same form as the person transmits or processes.

The term “service provider” does not include a person solely by virtue of that person offering or providing to a covered person either a support service of a type provided to businesses generally or a similar ministerial service, or time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.

Notwithstanding the broad definition of “covered person,” the CCFPL contains numerous exemptions, including for banks; licensed escrow agents; licensees under the California Financing Law; licensed broker-dealers or investment advisers; licensees under the Residential Mortgage Lending Act; licensed check sellers, bill payers, or proraters; and licensed money transmitters, among others.

The Department is authorized to impose civil money penalties for any violation of the CCFPL, rule or final order, or condition imposed in writing by the Department in an amount not to exceed the greater of $5,000 for each day during which a violation or failure to pay continues, or $2,500 for each act or omission. Reckless violations are subject to increased penalties not to exceed the greater of $25,000 for each day during which the violation continues, or $10,000 for each act or omission. For knowing violations, the Department is authorized to assess penalties not to exceed the lesser of one percent of the person’s total assets, $1 million for each day during which the violation continues, or $25,000 for each act or omission.

What Do You Need to Do?

It is always important to take consumer complaints seriously and to respond timely and accurately. Now is the time to review your company’s complaint management procedures to make sure they are robust. It is always important to mine your consumer complaints so that you can learn from them and correct errors timely to ensure mistakes don’t recur, and the Department’s latest settlement is a reminder that companies subject to the CCFPL also have a legal obligation to do so.

MENLO PARK, CA — It’s easy to overlook the significance of grassroots engagement and local participation in the democratic process—however, leaders like the Sr. Director of Business Operations at Latitude by Genesys, Cris Bjelajac, are setting an example by actively participating in their local elections. Bjelajac volunteered as a Precinct Officer for his local elections on Super Tuesday, March 5th.

“I started volunteering in 2020 because most of the existing volunteers were the incredible women of the League of Women Voters, but due to pandemic concerns they could not risk leaving their homes.” Bjelajac said. “You may remember that during the primary season that year, voters were waiting sometimes hours to cast their ballot at locations across the country. That’s because at many polling places there were so many voters and a lack of able volunteers. Since then, I have really enjoyed doing it, both in local elections and town meetings, as well as State and National Primaries and Elections. Getting to be part of the democratic process in this country is truly an honor.”

The Local Elections Landscape

Local elections often serve as the bedrock of any democratic society. They impact immediate communities, shaping policies and decisions that directly affect residents’ day-to-day lives. From school board positions to city council seats, these elections provide an opportunity for citizens to have a direct hand in crafting the future of their neighborhoods. “If you’ve never gone to a town meeting, I highly recommend you try to attend one this year. It’s democracy at its most basic. Enlightening, encouraging, sometimes maddening, and yet often fun,” says Bjelajac.

Being There for the Community

A precinct director plays a crucial role in ensuring that the democratic process is accessible and inclusive. Being there for the community means creating an environment where every voice can be heard, regardless of background or circumstance. By volunteering time and expertise, this leader exemplifies a commitment to fostering an environment where diverse perspectives are valued and respected.

Latitude By Genesys’ commitment to a smooth electoral process reflects a broader corporate ethos of social responsibility. “Genesys has a huge commitment to volunteerism, and provides not only the ability to redirect my time to charitable causes, it also matches those contributions monetarily allowing me to donate hard dollars to charities of my choice.” Bjelajac explained. By actively participating in local elections, the company not only demonstrates a commitment to citizenship but also recognizes that a thriving community is essential for sustainable local and national success.

About Latitude by Genesys

Latitude by Genesys® is a comprehensive debt collection and recovery solution for managing all pre- and post-charge-off accounts and workflow processes. It provides collectors and agents with the tools to manage the debt collection and recovery process and provides full functionality for the collector’s or agent’s desktop and deploys as a true zero-footprint, browser-based environment. Since 1996, Latitude’s focus has been to provide the most forward-thinking, attractive solution to the business needs of different people and companies in the accounts receivable management (ARM) space. Acquired by Genesys in 2016, Latitude is continually growing, innovating, and reshaping the technology expectations and customer experiences of ARM companies and their consumers.

On March 5, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued its final credit card late fee rule (the “Final Rule”), which, amongst other things, significantly reduces the late fee safe harbor cap for issuers other than “smaller card issuers” from the currently permitted $30 (and $41 for repeat violations) to a flat fee of $8 for all violations. In prior blogs, we have discussed the Final Rule and how it compares to Regulation Z and the previously Proposed Rule, and a legal challenge to the Final Rule brought by financial industry trade associations in a lawsuit and motion for preliminary injunction. Below, we discuss some of the operational impacts we expect to see when the Final Rule becomes effective.

Anticipated impacts of the Final Rule include:

• Revised disclosures: The CFPB’s justification for setting the effective date 60 days after publication in the Federal Register is that the Final Rule does not require any disclosure that differs from the current requirement, just a “mere alteration of the disclosed maximum late fee amounts.” 89 FR 19187-19188 (Mar. 15, 2024). However, the CFPB fails to account for the time and effort that will go into programming changes and revising cardholder agreements, disclosures, and marketing materials for – by the CFPB’s own estimate – 95% of the $1 trillion credit card market. During the 60-day time period, account opening disclosures will need to be revised, all existing paper inventory that reference late fees must be destroyed, statements will need to be reprogrammed, and websites will need to be updated. The same product, operations, IT, compliance and legal subject matter experts will be tasked to complete all these changes in a severely compressed period of time. When disclosure changes are rushed less change management testing can be performed and the risk of error rises.

• Challenges in setting a cost analysis-based late fee in lieu of the safe harbor amount: While the safe harbor penalty fee has been the industry standard, the reduction of that safe harbor fee to $8 under the Final Rule may result in issuers choosing to instead perform a cost analysis to establish penalty fees that represent a reasonable proportion of the total costs incurred by the issuer as a result of a violation if an issuer elects to charge penalty fees based on such costs, rather than the safe harbor fees. However, while it amends the Regulation Z Official Interpretation to state that post charge-off collection costs may not be included in the cost analysis (as further discussed below), the Final Rule fails to provide any affirmative guidance to enable issuers to determine how to perform a cost analysis that would satisfy the CFPB. Rather, the Final Rule Supplemental Information just reiterates that card issuers bear the burden of demonstrating that cost analysis-based late fees are reasonable and proportional to the costs incurred due to the violation. While the CFPB cites the ability of an issuer to use the cost analysis in setting a reasonable and proportional fee as a justification for the drastically lower safe harbor amount, any large issuer that does so should anticipate doing so under great regulatory scrutiny, with added risk of litigation.

• Detrimental effects on consumers – the possibility of higher APRs and other charges: In light of the drastic reduction of the late fee safe harbor amount and the fact that it will no longer be adjusted for inflation (except for smaller card issuers), it is reasonable to expect that the true cost impact of late payments will be incorporated into credit card pricing in the form of higher APRs imposed on many cardholders who pay on time. In fact, the CFPB anticipates this, stating in the commentary to the Proposed Rule that one option to cover collection costs if the $8 safe harbor fee is insufficient would be to “use interest rates or other charges to recover some of the costs of collecting late payments.” 88 FR 18919 (Mar. 29, 2023). Essentially, cardholders who pay on time will subsidize late payers through increased finance charges, or other charges as suggested by the CFPB.

• Effects and costs related to APR increases: An issuer that decides to increase APRs in an effort to cover late payment-related expenses would face added costs and burdens. In addition to the costs associated with change in terms notifications, issuers may be required to conduct and document periodic rate increase re-evaluations and adjustments. Since an increased APR cannot be applied to pre-existing balances or charges incurred within 14 days after notice of the increase, and subject to certain exceptions notice must be provided at least 45 days prior to the increase, it likely would take considerable time for an APR increase to offset costs associated with late payments. Further, if an APR increase is imposed on balances incurred in the future, the complexity of disclosing and administering multiple APRs will further add to issuers’ costs.

• Inability to recover actual credit losses related to charge-off: As noted above, the Regulation Z Official Interpretation is amended by the Final Rule to state that post-charge-off collection costs are excluded from the penalty fee calculation. Currently, the Regulation Z Official Interpretation, at 52(b)(1)(i)-2.i, provides that “Losses and associated costs (including the cost of holding reserves against potential losses and the cost of funding delinquent accounts)” are not to be taken into consideration in determining the cost incurred due to a violation in calculating a reasonable and proportional penalty fee. The Final Rule expressly expands this interpretation (for both larger card issuers and smaller card issuers) to exclude consideration of post-charge-off collection costs in the cost analysis of the late fee, further impairing issuer’s ability to set the fee based on the actual cost of default.

• Other consequences: A myriad of other potential results of the Final Rule that would affect cardholders and issuer operations, not addressed and apparently not taken into consideration by the CFPB, include possible increases in minimum monthly payments (requiring a 45-day change in terms notice), reductions in credit limits (might require adverse action notices), and the cancellation of some accounts (again, might require adverse action notices).

The Final Rule is to be effective May 14, 2024, 60 days after its publication in the Federal Register on March 15, 2024, subject to any court-imposed injunction resulting from litigation. We continue to monitor the litigation brought by financial industry trade groups that may impact the effective date of the Final Rule.

ROCHESTER, N.Y. — Continental Service Group, LLC d/b/a ConServe, in conjunction with the company’s “Matching Gift Program”, donated its March ConServe Cares proceeds to the American Heart Association. The ConServe team supports and funds the efforts of numerous local non-profit agencies that strive to make a difference. Due to the kindness and generosity of their employees, numerous lives in their community have been positively impacted and enriched.

Giving back to their communities is a fundamental aspect of ConServe’s mission statement. “Our dedicated team of employees is proud to support various local and national agencies that assist individuals facing health challenges, making their lives a bit easier,” said George Huyler, Vice President of Human Resources at ConServe.

“For 100 years, the American Heart Association has saved and improved lives, pioneered scientific discovery and advocated for healthy communities. With bold moves and support from donors like ConServe, we are saving lives from heart disease and stroke,” said Megan Vargulick, Executive Director of the American Heart Association Rochester/Buffalo Region. “All of us have raised millions of dollars to improve health and quality of life for everyone, transformed communities, and significantly reduced heart disease and stroke death rates. And we’re just getting started. With ConServe’s help, we are working to ensure all people can enjoy longer, healthier lives.”

About ConServe

ConServe is a top-performing accounts receivable management service provider specializing in customized recovery solutions for their Clients. Anchored in ethics and compliance, and steadfast in their pursuit of excellence, they are a consumer-centric organization that operates as an extension of their Clients’ valued brands. For over 38 years, they have partnered with their Clients to provide unmatched customer service while simultaneously helping them achieve their accounts receivable management goals. Visit online at: www.conserve-arm.com.

About the American Heart Association

The American Heart Association is a relentless force for a world of longer, healthier lives. They are dedicated to ensuring equitable health in all communities. Through collaboration with numerous organizations, and powered by millions of volunteers, they fund innovative research, advocate for the public’s health and share lifesaving resources. The Dallas-based organization has been a leading source of health information for a century. During 2024 – their Centennial year – they celebrate their rich 100-year history and accomplishments. As they forge ahead into their second century of bold discovery and impact their vision is to advance health and hope for everyone, everywhere. Connect with them at heart.org, Facebook, X or by calling 1-800-AHA-USA1.

The CFPB recently published a decision and order subjecting a nonbank consumer lender to its supervisory authority based on its determination that the lender may be “engaging, or has engaged, in conduct that poses risks to consumers.”

This marks the first time the agency has made such a determination after a contested administrative proceeding, the CFPB said in a press release. As the CFPB acknowledged, it will serve as an important precedent guiding the agency’s exercise of this authority.

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Here are five key takeaways:

1. The CFPB has unliteral authority to subject individual nonbank financial services companies to its supervisory authority.
2. The CFPB has set a low bar for what constitutes “reasonable cause” to believe a nonbank’s conduct poses risks to consumers.
3. Refusing to consent may delay CFPB supervision, but only for a matter of months.
4. The CFPB has only publicized risk to consumers determinations after a nonbank refused to consent to supervision.
5. Nonbank providers of consumer financial products or services that are not currently subject to supervision should prepare for it.

The CFPB has unilateral authority to subject individual nonbank financial services companies to its supervisory authority.

Congress expressly granted the CFPB supervisory authority over the thousands of nonbanks that offer residential mortgage loans, private education loans and payday loans. Congress also provided the CFPB two avenues to extend its supervisory authority over other nonbanks:

• The CFPB has authority to issue rules defining who is a “larger participant” in a market for a consumer financial product or service other than the markets for mortgage, private student and payday loans.

                 – In its first four years, the CFPB issued five “larger participant” rules, which extended the CFPB’s supervisory authority to larger participants in the consumer debt collection, consumer reporting, student loan servicing, international remittances and automobile financing markets.

                 – After nearly a decade, the CFPB recently proposed another larger participant rule for the “market for general-use digital consumer payment applications.”

• Congress authorized the CFPB to supervise any nonbank provider of consumer financial service products or services when “the Bureau has reasonable cause to determine … that [the nonbank] is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”

The CFPB issued a procedural rule in 2013 that governs Risks to Consumers Determinations. Under that rule, the process begins when the CFPB provides a notice to a nonbank setting forth the basis for a possible Risks to Consumers Determination. The recipient has the right to respond in writing and orally, and the CFPB Director makes the ultimate determination of whether reasonable cause exists to determine that the nonbank is engaging in conduct that poses risks to consumers.

Many nonbanks have “consented” to the CFPB’s supervisory authority pursuant to this rule, often as a term of a negotiated consent order resolving an enforcement action. Increasingly, however, nonbanks have “consented” pursuant to a procedure in which a company that receives a Risks to Consumers Notice can forgo its procedural rights and consent to supervision. In fact, last week’s press release stated that the CFPB has issued such Notices to nonbanks operating “across [the] consumer financial services” industry, and a recent edition of the CFPB’s Supervisory Highlights publication noted that “several entities have voluntarily consented to the CFPB’s supervisory authority” after receiving a Risks to Consumers Notice.

Last week’s order represents the first time a nonbank has refused to consent and chosen instead to insist on its procedural right to contest the Risks to Consumers Notice. Nonbanks that choose this route have a heavy burden. The statute provides that the CFPB will be both prosecutor and judge in these proceedings. Indeed, the proceeding that resulted in the recently published order was initiated by the Assistant Director for Supervision, a political appointee, and resolved by the CFPB’s Director, her immediate supervisor and the person who appointed her.

Nonbanks that receive a Risks to Consumers Notice may reasonably conclude they will be unlikely to persuade the Director to reach a different conclusion than Bureau staff, especially when such a determination does not commit the agency in any way. And while the CFPB concedes that the Director’s final determination is “final agency action” subject to judicial review under the Administrative Procedure Act, a district judge would not review the Director’s judgment de novo but would apply the APA’s deferential “arbitrary and capricious” standard. Accordingly, once the CFPB has decided a nonbank is engaging in conduct that “poses risks to consumers,” only a strong factual rebuttal is likely to persuade the Bureau otherwise.

The CFPB has set a low bar for what constitutes “reasonable cause” to believe a nonbank’s conduct poses risks to consumers.

Last week’s order makes clear that the CFPB interprets its authority broadly. According to the CFPB, the requirement that it have “reasonable cause” to determine that a company poses risks to consumers provides it with “considerable discretion.” For example, this order was based on unverified complaints focused on:

• Potentially misleading oral statements about aspects of the product that contradict contractual terms governing the loan product.
• Debt collection practices that do not necessarily violate the existing law.
• Inaccurate credit reporting, “even to the extent [the Company] disputes some of the facts alleged by consumers.”
• The mere possibility that consumers’ frequent refinancing of loan obligations reflects unlawful behavior.

The CFPB made clear that it had not determined – and did not have to determine – the company actually had engaged in unlawful conduct. In its view, the purpose of an examination is to assess an institution’s compliance with federal consumer financial law, and that it need not reach any judgment regarding the legality of conduct in advance of an examination.

Indeed, it is difficult to draw a meaningful distinction between the Bureau’s standard for when it can make a Risks to Consumers Determination and when it can issue a Civil Investigative Demand (CID) to a company. The CFPB has authority to issue a CID whenever it has “reason to believe” that a person may possess facts relevant to a violation of law. The agency has repeatedly emphasized that it “is not required to show that it has probable cause to believe there is a violation of federal law before opening an investigation,” and that it can issue a CID “merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”

Just as the recipients of CIDs have failed to persuade the Director that the Office of Enforcement did not meet this low bar when it issued a CID, recipients of Risks to Consumers Notices are likely to have a difficult time persuading the Director that the Office of Supervision was wrong to say it had “reasonable cause” to determine the nonbank “is engaging, or has engaged, in conduct that poses risks to consumers.”

Refusing to consent may delay CFPB supervision, but only for a matter of months.

Although it’s only a single data point, the order issued last week does provide some indication of how long the process takes when a nonbank refuses to consent to supervision. It reveals that the Office of Supervision’s “notice” was issued on March 10, 2023, and that the final determination from the Director came on November 30, 2023. But that eight-and-a-half-month process may not represent a typical process because it reflects an additional three months related to supplemental briefing not contemplated by the procedural rules. Accordingly, nonbanks considering whether to contest the Office of Supervision’s Notice should assume that doing so will delay the final determination by approximately six months or even less.

The CFPB has only publicized risk to consumers determinations after a nonbank refused to consent to supervision.

Under the original procedural rule issued in 2013, determinations that a nonbank should be subject to supervision because the company may be engaged in conduct posing risks to consumers were regarded as confidential supervisory information. This is consistent with the treatment of information regarding the CFPB’s determinations of who to examine, which are similarly “based on the assessment by the Bureau of the risks posed to consumers” by different entities subject to its supervisory authority. Under longstanding CFPB rules, and consistent with the practice of other financial regulatory agencies with supervisory authority, the CFPB does not release confidential supervisory information except in very narrow circumstances.

Under the CFPB’s 2022 amendments to the procedural rule, however, the Director can decide to publish any determination that a nonbank may be engaging in conduct that poses risks to consumers, including those reached after the nonbank has exercised its statutory right to contest the determination and those resulting from consent.

Although the Bureau has publicly acknowledged that many nonbanks have consented to supervision, it has not published any of the resulting orders. By contrast, the only company to insist on its procedural rights has been rewarded with a public order suggesting – but not actually proving or demonstrating – that it is engaged in unlawful conduct. Thus, the CFPB’s discretionary decision to publicize a determination that a nonbank may be engaging in conduct that poses risks to consumers correlates perfectly with whether the nonbank insisted on its procedural rights. As a result (and putting aside the propriety of this practice), unless the CFPB rescinds the 2022 amendment to its procedural rule, a company that receives a Risks to Consumers Notice should consider whether to risk the negative publicity that would accompany a public Risks to Consumers Determination.

Nonbank providers of consumer financial products or services that are not currently subject to supervision should prepare for it.

The CFPB has a powerful tool to quickly determine that a nonbank consumer financial services company should be subject to examination. Nonbanks that are not subject to CFPB supervisory authority, but who might reasonably expect to make it onto the CFPB’s examination schedule based on the agency’s general risk prioritization factors and its policy priorities, should anticipate the possibility that they could receive a Risks to Consumers Notice at any time, and that whether they decide to exercise their procedural rights or not, they could soon be welcoming CFPB examiners on site.

Debt collectors added digital communications to their omnichannel outreach strategies as soon as regulators gave the green light on emailing, texting and other forms of digital communication. While each channel has its pros and cons, testing can help you identify which channel may work best for different types of consumers. For example, some people may be more likely to open and respond to emails than a text or letter. Emailing can also be less expensive than sending texts, direct mail or making phone calls. To successfully incorporate email and ensure right-party contact, you need a verified and up-to-date email list.

What is email append?

Email append is the process of adding email addresses to contact information in an existing database. An email append service can do this by using a proprietary database of consumer contact information to match an email address to a contact’s name, phone number and physical address. Reverse email append can also be used to find a consumer’s physical address based on their email address.

Marketing companies and departments have used email append to build their contact lists for years, as emails provide inexpensive and direct access to consumers.

Around the world, 72 percent of business leaders say they rely on email when trying to reach or stay in touch with customers. And 59 percent said email data would be the most important type of contact data to have over the next year.¹

Now, debt collectors can benefit from email as well. For example, Experian has worked with a collector to conduct an A/B test by adding email to the collector’s current phone-based outreach. As a result, 25 percent of debtors on the test population paid by email.²  

Read: Tip sheet: Strengthening Your Debt Collection Strategy

Why add email to your digital contact strategy?

Email can help you reach consumers on their preferred channel at their convenience. You can convey a large amount of information in an easily scannable email, which consumers may be more likely to read than a text message. And if you’re using automated collections via self-service portals and chatbots, you need to consider how to get consumers to your website. 

Our previous analysis found digital outreach can work well when combined with an online recovery system:³  

• 52 percent of consumers who visited a collector’s website agreed to a payment schedule after receiving the right offer. 
• 21 percent of consumers visited the website before 8 a.m. or after 8 p.m. 
• 56 percent of consumers who committed to a payment plan did so on their first visit to the website.

Email can be one of the best ways to reach consumers who prefer interacting with your website or portal outside standard business hours. Additionally, as a low-cost channel, you can incorporate email into an optimized strategy based on your current objectives, such as minimizing monthly expenses or maximizing dollars collected. 

Watch the tech showcase to find out how Experian® Optimize and PowerCurve® Customer Management can help collectors increase profitability and improve operational efficiency.

Keeping your email list clean and updated

Sending emails to addresses that are undeliverable or unused can waste time and money. Verification can help to ensure your messages get to the intended recipients, avoiding potential third-party disclosures. Additionally, email service providers track your outreach. If your emails frequently bounce or get marked as spam, future emails could be automatically block-listed or sent to spam. 

• Email verification: Verification solutions can look for and correct mistakes in email addresses, such as an extra space or typo. They can also scrub your email list for addresses you don’t want to email, such as a consumer’s workplace email, and test email addresses for deliverability. 

Ideally, organizations can collect and verify emails in real-time during onboarding. However, this may be easier for creditors than collectors. For example, the Consumer Financial Protection Bureau’s Consumer Credit Card Market report from 2023 found:

• In 2022, 88 percent of cardholders had a valid email address and agreed to receive emails from card issuers. Only 59 percent were eligible for text message communications.
• 63 percent of the cardholders receive at least one email related to debt collection.
• 36 percent of delinquent cardholders who received an email opened the email in 2022 — an increase from 32 percent in 2020.⁴  

Collectors might not have the same initial access and ongoing communication with consumers, but they can still create a compliant email list with email append.

Experian can help build your email list

Our email append services can help debt collectors improve their digital contact strategy and increase right-party contact via email. Some of the benefits of our services include: 

• A collections-permissioned database: We’ve been collecting email data for over 20 years and created a database with approximately 2.1 billion email addresses, provided by consumers that have opted in for marketing, including over 275 million emails for U.S. adults. Some email databases are only permissioned for marketing or identity purposes. Our database is also permissioned for collections and we can help you stay in compliance. 
• Freshest data:  We update our database with 10M to 40M records monthly and verify every new email address. You can append several emails to each contact as many consumers have multiple active email addresses.
• Reverification before appending: Verified emails that are appended to your contact list are reverified again to ensure the address is valid and can receive your email. 
• Flexible delivery options: Use our real-time API with your online CRM or back-end systems to append and verify emails or use a batch service to append emails with a one-time or recurring engagement. The per-email pricing ensures you’ll only pay if there’s a matched and appended email. 

Connect with an expert to learn how you can leverage these email append services.

Sources:

1. Experian (2022). Global data management research
2. Experian. Return on investment for collectors using email
3. Experian (2017). Getting in front of the shift to omnichannel collections
4. Consumer Financial Protection Bureau (2023). The Consumer Credit Card Market

There is never a shortage of news in the world of debt collection. At insideARM, we try to help you stay on top of the most crucial news by bringing you one piece of relevant news each day. We publish articles covering topics our editorial team thinks are the most important for ARM industry professionals to stay compliant while increasing revenue. That said, even with a streamlined news source, it can be difficult for even the most organized person to stay on top of what is going on in an industry that is changing rapidly. So, starting today and continuing weekly on Mondays, we are going to bring you the insideARM Weekly Recap, a synopsis of everything we highlighted during the week and why our editorial team thinks you should know about it. 

Last week, we brought you news on CFPB complaints, a win on FDCPA standing in state court, a state push for further regulation on “abusive conduct,” and we learned the CFPB and FTC’s stance on “Pay-to-Pay” Fees. 

On Monday, we highlighted an article from Troutman Pepper about how credit reporting issues make up the vast majority (over 80%) of CFPB complaints from consumers. We also learned that the three main issues within the credit reporting complaints were: incorrect information, improper use of credit reports, and investigation of complaints. Credit reporting will likely continue to be a hot-button issue throughout 2024.

Tuesday’s news gave an update from The Sessions Firm on FDCPA standing in state court in Florida. In Scott v. Collectco, Inc. d/b/a EOS CCA, a consumer alleged FDCPA violations which only caused fear of future harm as the “injury.” The Court held that the consumer did not have standing to bring the suit as they had failed to plead an actual injury. This may be the beginning of a trend in Florida to dismiss cases with only speculative injuries, and it will be worth watching whether we see similar results regarding standing in other state courts.

On Wednesday, in an article by Ballard Spahr, we informed you that the CFPB is encouraging the state of New York to ban unfair or abusive practices in bills that have been pending in the New York legislature since early 2023. Specifically, the CFPB stressed the importance of an unfairness standard for combating fees and data security issues. They also want the bills to clarify that actions can be deceptive even if they are not aimed at a consumer. States are becoming increasingly active in the debt collection space. It’s important to keep track of these actions and watch the CFPB’s influence on state rules and regulations.

Our Thursday update focused on convenience fees and the lack of consensus on their legality. An article by Alston & Bird discussed the case of Glover and Booze v. Ocwen Loan Servicing, LLC¸ where the CFPB and FTC filed a joint amicus brief arguing that the convenience fees in the case violated the FDCPA. The two agencies argue that this type of fee is prohibited by the FDCPA as a collection and that a convenience fee is not legal simply because it is part of a valid contract. This 11th Circuit case is currently pending and has the potential to affect collections in Alabama, Florida, and Georgia.

Thanks for reading this weekly recap. You can expect recaps like this every Monday.

Questions or comments? Email editor@insideARM.com and let us know what your thoughts!

On February 27, the Consumer Finance Protection Bureau (CFPB) and the Federal Trade Commission (FTC) filed an amicus brief in the 11th Circuit case Glover and Booze v. Ocwen Loan Servicing, LLC arguing that certain convenience fees charged by mortgage servicer debt collectors are prohibited by the Fair Debt Collection Practices Act (FDCPA).  This brief comes on the heels of an amicus brief Alston & Bird LLP filed on behalf of the Mortgage Bankers Association (MBA).  In its brief, the MBA urged the 11th Circuit to uphold the legality of the fees at issue.

While litigation surrounding convenience fees has spiked in recent years, there is no consensus on whether convenience fees violate the FDCPA.  Federal courts split on the issue, as there is little guidance at the circuit court level, and the issue before the 11th Circuit is one of first impression.  Consequently, the 11th Circuit’s ruling could significantly impact what fees a debt collector is permitted to charge, both within that circuit and nationwide.

Why is it Important?

Convenience fees or what the agencies refer to as “pay-to-pay” fees are the fees charged by servicers to borrowers for the use of expedited payment methods like paying online or over the phone.  Borrowers have free alternative payment methods available (e.g., mailing a check) but choose to pay for the convenience of a faster payment method.

Section 1692f(1) of the FDCPA provides that a “debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt,” including the “collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  The CFPB and FTC argues that Section 1692f(1)’s prohibition extends to the collection of pay-to-pay fees by debt collectors unless such fees are expressly authorized by the agreement creating the debt or affirmatively authorized by law.

First, the agencies contend that pay-to-pay fees fit squarely with the provision’s prohibition on collecting “any amount” in connection with a debt and that charging this fee constitutes a “collection” under the FDCPA.  Specifically, the agencies attempt to counter Ocwen’s argument that the fees in question are not “amounts” covered by Section 1692f(1) because the provision is limited to amounts “incidental to” the underlying debt. They argue that fees need not be “incidental to” the debt in order to fall within the scope of Section 1692f(1). In making this point, the agencies claim the term “including” as used is the provision’s parenthetical suggests that the list of examples is not an exhaustive list of all the “amounts” covered by the provision.  Further, the agencies attempt to counter Ocwen’s argument that a “collection” under the FDCPA refers only to the demand for payment of an amount owed (i.e., a debt). They argue that Ocwen’s understanding of “collects” is contrary to the plain meaning of the word; rather, the scope of Section 1692f(1) is much broader and encompasses collection of any amount , not just those which are owed.

Next, focusing on the FDCPA’s exception for fees “permitted by law,” the agencies contend that a fee is not permitted by law if it is authorized by a valid contract (that implicitly authorizes the fee as a matter of state common law). The agencies suggest if such fees could be authorized by any valid agreement, the first category of collectable fees defined by Section 1692(f)(1)—those “expressly authorized by the agreement creating the debt”—would be superfluous. Lastly, the Agencies argue neither the Electronic Funds Transfer Act nor the Truth in Lending Act – the two federal laws Ocwen relies on in its argument – affirmatively authorizes pay-to-pay fees.

What Do You Need to Do?

Stay tuned. The 11th Circuit has jurisdiction over federal cases originating in Alabama, Florida, and Georgia. Its ruling is likely to have a significant impact on whether debt collectors may charge convenience fees to borrowers in those states, and it could be cited as persuasive precedent in courts nationwide.

On March 19, 2024, the Consumer Financial Protection Bureau (“CFPB”) published a blog touting letters it has sent to New York Governor Kathy Hochul, New York State Senate leaders, and New York State Assembly leaders to highlight the importance of a ban on abusive or unfair conduct that is being considered in pending New York legislation.

In the 2023 legislative session, State Senator Leroy Comrie and Assemblywoman Helene Weinstein introduced companion bills titled the “Consumer and Small Business Protection Act” in the Senate and Assembly that would expand Section 349 of the state’s general business law (which currently only prohibits deceptive acts) to prohibit unfair, deceptive, or abusive acts. The bills would allow any individual or non-profit organization entitled to bring an action under Section 349 “on behalf of himself or herself and such others to recover actual, statutory and/or punitive damages or obtain other relief as provided for in this article.” Currently, private actions can only be brought under Section 349 for injunctive relief. The bills would allow statutory damages of $1000 plus actual damages to be awarded in private actions and make the award of reasonable attorneys’ fees and costs to a prevailing plaintiff mandatory rather than discretionary. As we previously blogged, the New York legislature adjourned on June 10, 2023 without any action on two bills but the bills were automatically reintroduced when the legislature reconvened in January. We assume that the CFPB’s letters were directed at the bills since the letters failed to cite the bill numbers or identify the name of the proposed Act.

The CFPB letters, which are signed by Assistant Director Brian Shearer of the Office of Policy Planning and Strategy, urge the NY legislature to follow Congress’s “careful and deliberate multi-part prohibition” and include the “reasonable reliance” component in the proposed abusive conduct ban. Assistant Director Shearer also comments that the inclusion of an unfairness standard has been important to the CFPB and FTC in their efforts to combat junk fees and deficient data security and that the clarification in the bills that an act or practice may be deceptive even when the representation is not directed at a consumer would align with the CFPA’s deceptive conduct prohibition.

Section 1036 of the Consumer Financial Protection Act (CFPA) prohibits unfair, deceptive, or abusive acts or practices. An act or practice is unfair when: (1) it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (2) the injury is not outweighed by countervailing benefits to consumers or to competition. Section 1042(a) of the CFPA authorizes “the attorney general (or the equivalent thereof) of any State” to bring “a civil action…to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other law.” It also authorizes “[a] state regulator” to bring “a civil action or other appropriate proceeding to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law…and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other provisions of law with respect to such an entity.” Section 1042(a) includes limits on such authority, including with respect to actions against national banks and federal savings associations, and establishes conditions that a State Official must satisfy to exercise such authority, including notifying the CFPB before filing a CFPA claim and providing a description of the action. It also gives the CFPB a right to intervene in the state’s lawsuit. Despite the existing authority to enforce Section 1036, the CFPB believe the State of New York needs its own state law prohibiting unfair, deceptive and abusive practices.

Acting Outside of CFPB’s Statutory Authority

A review of the CFPA does not reveal a clear source of authority for the CFPB to advocate for state legislation. The CFPA provides the following authority to the CFPB:

• Section 1021 (b) authorizes the CFPB to “exercise its authorities under Federal consumer financial law for the purposes of ensuring that, with respect to consumer financial products and services … consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.”
• Section 1021 (c) sets forth the CFPB’s primary functions as the following; “(1) conducting financial education programs; (2) collecting, investigating, and responding to consumer complaints; (3) collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets; (4) subject to sections 1024 through 1026, supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law; (5) issuing rules, orders, and guidance implementing Federal consumer financial law; and (6) performing such support activities as may be necessary or useful to facilitate the other functions of the Bureau.”
• Section 1031 of the CFPA gives the CFPB the authority to “prescribe rules applicable to a covered person or service provider identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

This is not the first time the CFPB has sought to act outside of its statutory authority to influence actions taken by other regulatory bodies. In July 2023, Director Chopra issued a press release announced the start of an informal dialogue between the European Commission and the CFPB on a range of critical financial consumer protection issues. In August 2023, U.S. Representative Young Kim (CA-40) along with 18 members of Congress wrote a letter to CFPB Director Rohit Chopra expressing their concern with his “informal dialogue” with the European Commission without an explicit authorization from Congress and asked Director Chopra to terminate the dialogue.

New York’s Consumer Protection Agenda

Earlier this year, New York Governor Hochul announced “a sweeping consumer protection and affordability agenda”, including proposed actions to “strengthen consumer protections against unfair business practices” and “establish nation-leading regulations for the Buy Now Pay Later loan industry.” In December 2023, New York enacted two new consumer protection laws, which aim to protect consumers from (1) unwanted subscriptions by requiring notice to consumers for upcoming automatic renewals with clear instructions for canceling, and (2) confusion over prices by requiring merchants to post the highest price a consumer may pay for a product regardless of payment method.